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London v. Wells Fargo Bank, N.A

United States District Court, E.D. California

September 19, 2019

DEBRA LONDON, Plaintiff,
v.
WELLS FARGO BANK, N.A, Defendant.

          ORDER

         Plaintiff alleges defendant is improperly attempting to foreclose on her home after she successfully concluded Chapter 13 bankruptcy proceedings. Defendant contends plaintiff violated the parties’ agreement by failing to pay insurance and taxes for her property throughout a portion of the bankruptcy proceedings. Defendant now moves for summary judgment. As explained below, the motion is GRANTED in part and DENIED in part.

         I. UNDISPUTED FACTS

         The following material facts (“UMF”) are drawn from defendant Wells Fargo Bank, N.A.’s statement of undisputed facts, ECF No. 60-1, plaintiff Debra London’s responses to that statement, ECF No. 68-1 at 2-13, [1] London’s statement of undisputed facts (“Pl. UMF”), [2] ECF No. 68-1 at 14-20, and Wells Fargo’s responses, ECF No. 72-2. Unless otherwise noted, the facts the court relies on here are undisputed.

         A. London’s Loan, Modification and Default

         London owns and lives at 16355 Targowski Lane, Tracy, California 95304. Pl. UMF 1. On June 6, 2006, London obtained a $725, 000 loan from World Savings Bank, FSB, Wells Fargo’s predecessor, [3] with the loan memorialized by a note and secured by a deed of trust against London’s property. UMF 1, 3. The loan agreement contains several terms, including a term under which London agreed to pay taxes and hazard insurance premiums on the property and repay Wells Fargo for advances it made for taxes and insurance through an escrow account. UMF 2; Resp. UMF 2 (London disputing insofar “Wells Fargo fails to provide the full context of the loan agreement” and identifying other relevant terms). The promissory note includes a provision that requires Wells Fargo “to deliver or mail to [London] a notice of any changes in the amount of [her] monthly payment, called ‘Payment Change Notice, ’ before each Payment Change Date. The Payment Change Notice will include information required by law.” Resp. UMF 2; Def. Ex.[4] 2 § 3(H).

         On June 30, 2009, London received a loan modification, forgiving outstanding interest through July 14, 2009, with modified payments on the $668, 193.07 loan balance beginning on August 15, 2009. SUF 4; Def. Ex. 4 at 1; Pl. Ex.[5] 1 at 1.[6] Under the modification, London’s payment and interest rate would increase on July 15 of each year through July 15, 2015, at which point London would begin making principal and interest payments. Def. Ex. 4 at 1; Pl. Ex. 1 at 1. The modification agreement provided London’s payments “DO NOT include amounts necessary for escrow.” UMF 4 (original emphasis).

         On June 16, 2010, Wells Fargo informed London by letter that she had defaulted on the loan and indicated that Wells Fargo intended to commence foreclosure, with London’s loan $6, 694.62 past due. UMF 5 (disputed only as to legal conclusion loan was in default); Def. Ex. 5.

         B. London’s Chapter 13 Bankruptcy Petition, Wells Fargo’s Objection, and London’s First Amended Plan

         On January 2, 2011, London filed a Chapter 13 bankruptcy petition. UMF 6. During London’s bankruptcy proceedings, Wells Fargo advanced payments to cover property taxes and property insurance. UMF 11. On January 10, 2011, Wells Fargo sent London an initial escrow account disclosure statement explaining Wells Fargo had established an escrow account, stating London owed a minimum payment of $2, 241.23, an escrow payment of $1, 045.48, and $26.10 in “Shortage Payment or Overage Credit” because of a $313.16 escrow shortage, with a new total monthly payment of $3, 312.81 due March 15, 2011. UMF 12; Def. Ex. 6. On January 17, 2011, Wells Fargo sent a letter to London’s bankruptcy attorney, Jeffrey M. Meisner, stating London’s “first post-petition payment of $3130.13 is/was due on 1/15/2011.” UMF 13; Def. Ex. 7. The letter also stated, “This amount may have been reduced due to the removal of an existing escrow shortage payment. Any escrow that was due at the time of the bankruptcy filing may have been added to the proof of claim.” Def. Ex. 7. The letter noted, “For the duration of the bankruptcy, billing statements will not be mailed.” Id.

         On February 22, 2011, Wells Fargo objected to confirmation of London’s proposed bankruptcy plan. UMF 7; Def. Req. for Jud. Notice (“RJN”), ECF No. 60-7, Ex.[7] B.[8] In its objection, Wells Fargo stated that although London’s proposed plan “schedules Wells Fargo as a Class 1 creditor with pre filing [sic] arrearages of $24, 136.00 . . . . Pre-filing arrearages are owed to Wells Fargo in this matter in the amount of $33, 294.60 . . . . As such, it appears that the amount scheduled by the Debtor to be paid under the supervision and control of the Chapter 13 Trustee is insufficient to fund the proposed Plan.” Def. RJN Ex. B ¶¶ 3-5 (emphasis omitted).[9]

         London filed a first amended Chapter 13 bankruptcy plan on March 14, 2011, in which she listed Wells Fargo as her sole class one secured creditor with a monthly contract installment of $3, 130.13 for pre-petition arrearages of $33, 294.60 at a 0 percent interest rate and with a monthly dividend of $574.04. UMF 8; Conf. Plan, [10] Def. RJN Ex. C; Pl. Ex. 2, Pl. RJN, ECF No. 67, Ex. B. Under London’s proposed plan, she would pay the trustee $4, 126.00 each month for 60 months, “subject to adjustment pursuant to section 3.10(d) below.” Conf. Plan § 2.01. Under section 3.10(d), for monthly contract installments paid by the trustee on Class 1 claims,

Upon their receipt, Debtor shall mail or deliver to Trustee all notices from Class 1 creditors including, without limitation, statements, payment coupons, impound and escrow notices, default notifications, and notices concerning changes of the interest rate on variable interest rate loans. The automatic stay is modified to permit the sending of such notices. . . . If any such notice advises Debtor that the amount of the contract installment payment has increased or decreased, the plan payment shall be adjusted accordingly.

Id. § 3.01(d). Wells Fargo cites London’s testimony that she could not specifically recall when or how often she provided her bankruptcy attorney with documents she received from Wells Fargo regarding her loan. UMF 9 (citing London Dep., Def. Ex. 33 at 49:7–50:5, 50:22–51:24, 72:18– 74:6, 75:7–24). London points to her testimony that she initially gave the trustee and her attorney “everything [she] had from the bank.” Resp. UMF 9 (citing London Dep. at 49:4–6). London also testified that after she filed for bankruptcy, she did not “really remember getting much correspondence . . . .” London Dep. at 37:25-38:1; see also Id . at 51:21-24 (“Q: Do you recall, after your bankruptcy started, maybe receiving correspondence directly from Wells Fargo? A. Not that I can recall.”).

         C. The Bankruptcy Court Approves London’s First Amended Plan with Wells Fargo’s Approval and Consent; London’s Bankruptcy Payments Begin

         On June 8, 2011, the bankruptcy court approved London’s first amended Chapter 13 bankruptcy plan, with London to pay $4, 139 per month throughout the 60-month plan. UMF 10; Def. RJN Ex. D at 58-59; D. London Decl. Ex. 2 at 12-13. That court’s order also provided in relevant part: “For months 4 through 60, the first mortgage arrears owed to Wells Fargo Bank will be paid in the amount of $594.55 per month until the arrears of $33, 294.60 are paid in full. [¶] The Debtor’s plan payment will be $4, 139.00 per month for the duration of the 60 month plan.” RJN Ex. D at 59. Wells Fargo’s counsel signed the order approving the plan, noting Wells Fargo “[a]pproved and consented, ” as did London and the trustee. Id.

         On June 11, 2011, Wells Fargo sent letters to Meisner and the trustee stating, under the terms of the modification agreement, the interest rate on London’s loan would increase to 4.400 percent effective August 15, 2011, with London’s monthly payments adjusting to $2, 450.05. UMF 14; Def. Ex. 8. Wells Fargo noted that if it “pays the taxes and/or insurance, please refer to the monthly billing statement for the total payment amount with escrow.” UMF 14; Def. Ex. 8. In a Wells Fargo account statement dated July 19, 2011 with a payment due date of August 15, 2011, which Wells Fargo contends it sent to London, Wells Fargo identified a $3, 521.63 total payment due, including $1, 071.58 in “Escrow/Other, ” with $5, 129.37 in year-to-date escrow disbursements for taxes. Def. Ex. 24 at 135; see Smith Decl., ECF No. 60-2, ¶ 33 (identifying Exhibit 24 as “copies of monthly mortgage statements sent to Plaintiff with statement dates on or about January 2011 through November 2016”). This monthly statement includes, as do all of Wells Fargo’s monthly account statements, the following “IMPORTANT MESSAGE[]”:

If you are currently in Bankruptcy this statement is for informational purposes only. It reflects Post Petition amounts under Section 2 (except for Total Outstanding Deferred Interest) and may not include all fees incurred. Please contact the Bankruptcy Department at 1-866-259-7728 if you would like to stop receiving statements, have any questions, do not accept this statement as a conforming statement, or to request Reinstatement Figures, as this statement is not intended to be used for reinstatement purposes. While the loan is in an active bankruptcy status, you may not be able to access the account online.

Def. Ex. 24 at 135. Neither party acknowledges this disclaimer or addresses its significance here.

         On August 3, 2011, the trustee sent London a letter explaining he had received “correspondence . . . from your Lender indicating your ongoing mortgage payment is decreasing from $3, 0130.13 to $2, 450.05 effective 8/1/11. As a result of that decrease, as provided for by your Chapter 13 Plan, your plan payment is decreased from $4, 139.00 to $3, 384.00 starting August 25, 2011.” Pl. Ex. 3; Pl. UMF 5; Resp. Pl. UMF 5 (disputing because the “$2, 450.05 . . . did not cover escrow amounts advanced”).

         D. London’s Monthly Payments and Escrow Account

         According to Wells Fargo, from September 2011 through March 2014, London “made repeated payments of $2, 405.05 that were insufficient to cover the monthly payment including escrow charges advanced by Wells Fargo.” UMF 15; Resp. UMF 15 (London disputing, as she “made payments in the amount of $3, 384.00 [to the trustee]”). Wells Fargo acknowledges it “also received additional payments of other amounts during this time, ” though it does not explain how much it received or whether these amounts were paid to London’s alleged escrow arrears. See Smith Decl. ¶ 16 n.1; see also, e.g., Activity Statement, Def. Ex. 18 at 92 (indicating Wells Fargo received “Trustee Funds” in the amount of $1, 189.10 on January 11, 2012 and “Debtor Funds” in the amount of $2, 450.05 on January 12, 2012); Smith Decl. ¶ 27 (identifying Exhibit 18 as “a Customer Account Activity Statement that itemizes debits and credits to the account, as well as running balances of the unpaid principal, escrow, unapplied funds, and details about fees charged to [London’s] account” prepared by Wells Fargo in response to London’s April 2016 inquiry).

         On June 17, 2012, Wells Fargo sent letters to Meisner and the trustee indicating that with London’s August 2012 payment, the interest rate on her loan would increase to 4.775 percent, as provided under the modification agreement, with her monthly payment increasing to $2, 658.86. UMF 17; Def. Ex. 9. The letter also noted, “If Wells Fargo pays the taxes and/or insurance, please refer to the monthly billing statement for the total payment amount with escrow.” UMF 17. London responds that Meisner was no longer her bankruptcy counsel by this time, an assertion she repeats in response to nearly every reference to Meisner after this point, and she disputes that her then-current bankruptcy attorney, Nicholas Lazzarini, received Wells Fargo’s letter. Resp. UMF 17.[11]Wells Fargo concedes it did not file a notice of payment change (“PCN”) with the bankruptcy court, as required under Bankruptcy Rule 3002.1(c), [12] in August 2012. UMF 37. Wells Fargo’s records indicate it continued to receive payments of $2, 450.05 and $594.55 in August 2012, as it had in months prior. Activity Statement at 94.

         On June 5, 2013, Wells Fargo sent a letter to Meisner, stating Wells Fargo’s internal review of London’s account indicated Wells Fargo had not provided London “with a timely notice in accordance with Federal Rule of Bankruptcy Procedure 3002.1(c).” UMF 18. Wells Fargo further informed Meisner it had “made the appropriate adjustment to your client’s account.” UMF 18. The letter does not explain which “adjustment” was made. Def. Ex. 10. London again responds that Meisner was no longer her bankruptcy attorney at this point. Resp. UMF 18.

         On June 17, 2013, Wells Fargo sent letters to Meisner and the trustee stating, under the modification agreement, the interest rate on London’s loan would increase to 5.150 percent, with the monthly payment due on August 15, 2013 increasing to $2, 867.67. UMF 19; Def. Ex. 11. The letter again advised, “[i]f Wells Fargo pays the taxes and/or insurance, please refer to the monthly billing statement for the total payment amount with escrow.” UMF 19; Def. Ex. 11. Wells Fargo concedes it did not file a PCN with the bankruptcy court, as required under Bankruptcy Rule 3002.1(c), for the August 2013 payment change. UMF 37. Wells Fargo’s records indicate it received payments of $2, 450.05 and $594.55 in August 2013, as it had in the months prior. Activity Statement at 96.

         On December 27, 2013, Wells Fargo sent an annual escrow account disclosure statement to London’s Meisner, stating:

[E]ffective with the March 15, 2014 payment, the new monthly/biweekly payment amount will be $4, 378.54. Our records indicate the loan is contractually due for the 07-15-12 payment. [¶] Please adjust your records to reflect the new post petition payment amount, if applicable. The debtor and the Trustee have been notified of this payment change under separate cover.

UMF 20; Def. Ex. 12.

         According to Wells Fargo’s records, London began making monthly payments of $4, 378.54 and $594.55 in April 2014. Activity Statement at 98; see UMF 15 (contending “September 2011 through March 2014, Plaintiff made repeated payments of $2, 450.05”); see also UMF 36 (Wells Fargo filed a PCN on February 14, 2014).

         On August 11, 2014, Wells Fargo sent another letter to Meisner, stating, as it had earlier, “Wells Fargo Home Mortgage recently completed an internal review of your client’s account referenced above. During this review, we discovered your client was not provided with a timely notice in accordance with Federal Rule of Bankruptcy Procedure 3002.1(c). As a result, we have made the appropriate adjustment to your client’s account.” UMF 21, Def. Ex. 13.

         On December 18, 2014, Wells Fargo sent a letter and an annual escrow account disclosure statement to Meisner, stating:

[E]ffective with the February 15, 2015 payment, the new monthly/biweekly payment amount will be $4, 399.31. Our records indicate the loan is contractually due for the 11-15-13 payment.
Please adjust your records to reflect the new post petition payment amount, if applicable.

UMF 22; Def. Ex. 14. Although the letter also states, “[t]he debtor and the Trustee have been notified of this payment change under separate cover, ” nothing in the record indicates Wells Fargo notified London or the trustee of this change. Def. Ex. 14; see Resp. UMF 22 (London disputing this letter was sent to Lazzarini). Nonetheless, according to Wells Fargo’s records, in March 2015, London began making monthly payments of $4, 399.31 and $594.44. Activity Statement at 99-100.

         On November 19, 2015, the United States Bankruptcy Court for the District of Maryland filed an order approving a settlement between the United States Trustee Program and Wells Fargo. Def. Ex. 26 (letter and settlement payments to London, with copy of settlement agreement following). The settlement arose after “the Executive Office for United States Trustees . . . approached Wells Fargo . . . with concerns regarding the timeliness of filing and the failure to file PCNs required under Bankruptcy Rule 3002.1” in bankruptcy cases proceeding nationwide. Def. Ex. 26 at 145. The settlement provided that it may “not be used as an admission of liability, violation, or wrongdoing by Wells Fargo” and the Maryland bankruptcy court “retain[ed] exclusive jurisdiction over all matters subject to” the settlement. Id. at 161.

         Wells Fargo sent London[13] an escrow account disclosure statement dated December 7, 2015, indicating London had an escrow shortage of $9, 288.65 and providing her with two payment options to cure the shortage in connection with the making of her February 15, 2016 payment. UMF 23; Def. Ex. 15. Under the first option, London would pay the entire escrow shortage in a single payment, then a new monthly payment of $5, 122.46. Def. Ex. 15. Under the second option, she would pay the escrow shortage over 12 months, with a new monthly payment of $5, 896.41. Id.; UMF 23.

         E. London Completes Payments under Bankruptcy Plan

         On February 18, 2016, the trustee sent London a letter, stating: “[Y]ou have completed your Chapter 13 Plan. You may stop making payments to the Trustee. You need to commence making payments directly to your mortgage lender(s). Please contact your lender(s) to obtain current payment information.” Pl. Ex. 4. That same day, the trustee filed ...


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